Clause 100 - Civil liability for breach of conditions
Communications Bill
5:00 pm

Mr John Whittingdale (Maldon and East Chelmsford, Conservative)

I beg to move amendment No. 112, in

clause 100, page 94, line 14, leave out paragraph (a).

Since this is my first contribution, rather than an intervention, in this sitting may I join in wishing the Committee a happy new year and apologise for my slightly late arrival? The explanation relates to the point that you just made, Mr. Gale. I set my autopilot and found myself in the middle of the Committee considering the Hunting Bill, before beating a hasty retreat to the calmer waters of the Communications Bill.

Clause 100, on the face of it, appears to be relatively simple. It addresses civil liability and makes compliance with conditions and with enforcement notification a duty owed to, and enforceable by, any person who has suffered a loss as a result of a breach of conditions. Under the Telecommunications Act 1984, it is possible for a person to sue for breach of an enforcement order from Oftel. However, the clause goes further and gives individuals the power to sue for breaches of conditions. Many in the industry believe strongly that it is inappropriate for people to have recourse to the courts for breaches of conditions. The amendment would remove the provision under which compliance with a condition, rather than an enforcement order, is a duty owed to third parties.

Such a case that might occur is if a person believes that he has been unfairly or unduly discriminated against. It is a primary job of the regulator to determine that; it is not, in most cases, a matter of law that courts should judge. An obvious question to ask is what is the point of having a regulator if somebody can have recourse to the courts to decide whether a breach has occurred?

Other obligations under the conditions of authorisation might relate to highly technical issues such as price regulation, whether economic tests have been met, or third party rights. If we allow all those to be grounds for recourse to the courts, there is a real danger that we will create a litigious environment and undermine Ofcom's authority to enforce the conditions that it lays down. There is no requirement under EU directives to allow such third-party rights.

I think that the amendment is the only one that we have considered to date that has brought together all providers in the sector: British Telecom, which is the biggest provider; the alternative providers that are in competition with BT; and the mobile operators that can be considered to be direct competitors. All providers have expressed considerable concerns about the extension of the right to allow people to sue providers for potential breach of conditions.

Several further points have been made by the industry. They are valid and I hope that the Minister will at least consider them. First, conditions in a telecommunications authorisation are quintessentially a matter of public policy. Policy considerations, such as the duty to act transparently and the principle of proportionality, should be applied when conditions are enforced. A third party that enforces them through a court will not be able to do that. Conditions in authorisation are designed to be of general benefit rather than to give rise to what could be called quasi-contractual duties that are enforceable by individuals. That is another reason why it is much more

appropriate that those highly specific rules should be left to a public body.

Most of the alternative providers operate in a market that is either highly competitive, or in which they themselves are sometimes the victims of anti-competitive behaviour. It is unclear why they should be exposed to a much greater range of civil liabilities than are other individuals and companies that are going about their business. That is particularly true in the current financial environment; many such providers are operating under very tight margins, and the extra legal liabilities that the clause would impose on them open up the real possibility that telecoms and internet providers will find it more difficult to obtain funding to operate in the UK.

Where it is felt that special consumer protection measures are needed, they are covered by the horizontal regimes—for example, through the consumer credit regime. Quite often, the customers of business-focused telecommunications providers are larger than the providers themselves; therefore they, too, do not need the special legal privileges that the clause will provide.

There is a fear that the right to take court action could be used by a telecoms operator who does not like Ofcom's policy stance, and that it could therefore result in the second-guessing of the regulator's policy, which is a bad idea in principle. Furthermore, it is not always clear what the conditions of authorisation really mean. They are not designed to give legal certainty in the way that, for example, a legal contract would. It is part of Oftel's role—and it will become part of Ofcom's role—to decide those questions. For example, the word ''reasonable'' is used more than 20 times in the new draft conditions of authorisation that Oftel is proposing should have effect under the new regime. It will not always be possible for providers of communications services to know when they are complying with their obligations—or, in other words, to define whether they are acting reasonably.

For all those reasons, there is real concern that the effect of the clause will be to second-guess the job of the regulator and to create double jeopardy for providers. The provision is not required under the terms of the new directive and it is strongly felt to be unnecessary and potentially detrimental to the development of communications services in this country. The entire industry is united on the issue. I urge the Minister to think carefully about whether he considers the provision to be necessary, or whether he might, on second thoughts, accept the merits of our amendment to remove it.

Mr Stephen Timms (Minister of State (e-Commerce & Competitiveness), Department of Trade and Industry; East Ham, Labour)

When we debated clause 90, I set out the key elements of the enforcement arrangements that we proposed for the conditions of entitlement, which will replace the current system of telecommunications licences. Clause 100 provides that the obligation to comply with the conditions of entitlement—an enforcement notification, or conditions attached to a direction to suspend a person's entitlement to provide networks or services or make available associated facilities—is a duty owed to every person who may be

affected by the contravention. The impact of the introduction of such a duty is the creation of a new right for a private party to bring civil court actions for damages—or whatever—against a person whom they consider is not complying with their obligations under the conditions.

The remainder of the clause contains provisions defining more closely the basis on which an action is to be based, and subsection (3) includes a statutory defence in proceedings that the person

''took all reasonable steps and exercised all due diligence to avoid''

a breach. Under section 18 of the Telecommunications Act 1984, such a right only arises where the Director General of Telecommunications has made an order requiring the licensee to comply with his obligations under the licence. In other words, private parties do not have a right of action unless and until the director has ruled that the licensee is in breach of his obligations. Amendment No. 112 would prevent a private party from bringing civil proceedings unless Ofcom had determined that a provider was in breach of a condition of entitlement. I do not believe that that would be an appropriate or helpful change to make to the clause.

I understand the argument that extending the right of private party action, which we propose, might add to the business burden faced by communications providers, and I understand the concerns about the risk that private parties may bring action out of the blue, rather than raise alleged breaches with Ofcom as complaints or disputes. The hon. Member for Maldon and East Chelmsford is right to express those concerns, which we considered when preparing the Bill. However, those concerns are not justified to the extent that the provisions should be amended.

There is concern that a court might take a view that is not consistent with that which might be taken by Ofcom. That cannot be ruled out, although I think that it would be a rare occurrence. It would be right if Ofcom were to take account of court decisions when it takes a view—I would expect that to happen. It is possible for a regulator's position on an issue to evolve over time, and now that we are introducing a full right of appeal on the merits of a case, there are bound to be cases in which the regulator's original decision is overturned or modified on appeal.

Complete consistency, and the certainty that goes with that, cannot be assured in the system that would be introduced under the Bill, but they would not be assured if Ofcom alone were to decide on the matter, and the additional risk created by the courts having to decide on the merits of a case does not seem to be a large one. The parties may provide the courts with any specialist evidence that they think appropriate, which is what happens in respect of a case or decision by the regulator.

The hon. Member for Maldon and East Chelmsford voiced concern about providers being ambushed by private parties without the issue having been raised previously with Ofcom. There are no grounds for the view that the courts would not allow adequate time for a provider to prepare a defence and for relevant

documents and so on to be made available before a hearing; nor would the opening of proceedings preclude the parties from reaching an agreed settlement by negotiation before a formal judgment was reached. I expect the courts to give short shrift to any frivolous cases that might be brought before them.

Mr Simon Thomas (Ceredigion, Plaid Cymru)

Does a third party have to go through a complaints procedure with Ofcom first, before resorting to the courts? If they do not have to do that, why has that not been considered in the context of the clause?

Mr Stephen Timms (Minister of State (e-Commerce & Competitiveness), Department of Trade and Industry; East Ham, Labour)

That goes to the heart of the amendment. The clause gives providers the opportunity to take a concern directly to the courts, rather than go through Ofcom, should they wish to do that. When reaching a view on whether that is the right approach, it is important to consider the other side of the case—the considerable and quite significant benefits of what we are proposing.

Part 2 introduces new rights in respect of providers' entitlement, subject to conditions, to provide networks and services and provide associated facilities. Those rights are recognised in the communications directive that part 2 implements. The unrestricted right of private party recourse is a proper counterpart to that. Just as providers will no longer need to obtain a Government licence before commencing or varying operations, it will no longer be necessary for them or others to route complaints about abuse of those rights to a Government-created body, or to rely on that body to secure an appropriate outcome. The possibility of court action without a previous Ofcom decision against the provider—

Mr John Robertson (Glasgow Anniesland, Labour)

Will the Minister give some clarification on that point? Would someone who starts a company and sells services without obtaining a licence come under Ofcom's powers? If a complaint were made against the company while it did not have a licence, would a customer still be able to go to Ofcom to make a complaint?

Mr Stephen Timms (Minister of State (e-Commerce & Competitiveness), Department of Trade and Industry; East Ham, Labour)

Under the framework set out in the Bill, there will no longer be licences. The company in my hon. Friend's example would need to comply with the conditions set down by Ofcom for an operation of that sort. Under clause 100, we propose that if an aggrieved party thinks that Ofcom's conditions are not being effectively and properly implemented by a provider, they can go to court to try to have that put right. That is a helpful change, because the case he mentions might not be a high priority for Ofcom. It might join a list of issues that Ofcom is dealing with.

Our view is that creating the opportunity for an aggrieved party to go to court to try to put things right, rather than having to go through Ofcom, is a helpful change. The amendment, which would remove that possibility, would be unhelpful.

Mr Brian White (North East Milton Keynes, Labour)

Many companies have concerns about barriers to entry. Has my hon. Friend considered the barriers that the amendment could create to entry to the market? A start-up company would have to employ lawyers to consider the question of its entry to the market being prevented by malicious legal action.

Mr Roger Gale (North Thanet, Conservative)

Before the Minister proceeds, I gently suggest to him that if some other Chairmen had been sitting in my place and he had stood with his back to the Chair for as long as he has, he would have had his head bitten off.

Mr Stephen Timms (Minister of State (e-Commerce & Competitiveness), Department of Trade and Industry; East Ham, Labour)

I apologise for turning my back on you, Mr. Gale. I shall endeavour not to do so again.

The arrangement set out under clause 100 gives people with grievances—and we have all come across companies that have grievances about such matters—the opportunity to take their complaint to court rather than having to wait for Ofcom to reach a conclusion about it. That will give small and new players a greater opportunity to be effective in the competitive marketplace than they would have if we left things as they are. I consider this a pro-competition change, rather than the reverse.

The hon. Member for Maldon and East Chelmsford made the point that the directive does not make an express provision permitting such claims, and that is correct; but recital 27 of the authorisation directive, as he will know, says that the directive is

''without prejudice to any claims between undertakings for compensation for damages under national law.''

The directive that is being implemented in part 2 introduces or acknowledges the possibility of this kind of change being made.

Mr Richard Allan (Sheffield, Hallam, Liberal Democrat)

I would be grateful if the Minister could clarify whether there would be any barrier to companies mounting legal action against each other were the clause not included in the Bill. Do we have to say explicitly that civil action could be taken in respect of the breaching of an Ofcom condition? Or, does the presumption that someone could take such action anyway mean that, even without the clause, a company that felt aggrieved could go to court and say, ''I wish to take action because I believe that there is a barrier to my entering this market''?

Mr Stephen Timms (Minister of State (e-Commerce & Competitiveness), Department of Trade and Industry; East Ham, Labour)

Should the amendment be agreed and clause 100(1)(a) deleted, people would have to go to Ofcom and would not be able to go to court. My argument is that, if it is appropriate, the possibility of going to court is helpful. The courts are well able to reject vexatious or frivolous cases, so companies should not be prevented from going to court if it is in their interests to do so.

Mr Andrew Lansley (South Cambridgeshire, Conservative)

I have listened carefully to what my hon. Friend the Member for Maldon and East Chelmsford said from the Front Bench and he is right. It is strange that the Minister resists the argument. Certainly, recital 27 of the authorisation directive might contemplate such a possibility, but the articles do not specify it. If the directives were looking for something that was pro-competitive, they would have set it out.

The logic of the Minister's argument would apply equally to Competition Act prohibitions. Why would one not have an independent right to go to court to secure damages against someone in contravention of those prohibitions? We have not gone that far, and there is a great risk that enforcement of this regime will be taken out of the hands of Ofcom too many times, at

too early a stage and into the hands of courts. It is undesirable to risk Ofcom trying to establish a system of regulation and finding that it has been taken out of its hands by earlier court decisions.

Mr John Whittingdale (Maldon and East Chelmsford, Conservative)

Like my hon. Friend the Member for South Cambridgeshire, I am disappointed and unconvinced by the Minister's response. He began his remarks by saying that he recognised the legitimacy of concerns expressed by the industry at the possible consequences of the clause. He went on to say that the risk was not significant. That is not the view of those currently participating in the industry. They are very concerned.

The issue raised by the hon. Member for Ceredigion (Mr. Thomas) goes to the heart of the matter. We are not saying that people should not be able to go to court. They were able to do that whenever an operator continued to be in breach of an order issued by Ofcom, and under our amendment that would continue to be the case. The effect of our amendment would be that, in the first instance, Ofcom would have the responsibility of enforcing the conditions and it would then be subject to judicial process only if the provider was in breach of the enforcement order issued.

The Minister answered a different question when he talked about the EC directive. We were not suggesting that the directive did not allow the introduction of such a provision, but that it does not require such provision. I do not accept the Minister's arguments for those reasons and I wish to press the amendment to a Division.

Question put, That the amendment be made:—

The Committee divided: Ayes 9, Noes 12.

Mr John Greenway (Ryedale, Conservative)

I beg to move amendment No. 113, in clause 100, page 94, line 31, at end add—

'(4) Any proceedings brought against a person by virtue of subsection (2)(a) shall be suspended pending the outcome of any appeal under section 187 in respect of any decision of OFCOM in relation to the breach or alleged breach which is the subject matter of the proceedings and the outcome of such appeal shall be binding in relation to those proceedings.'.

May I also wish you a happy new year, Mr. Gale?

Much of this issue relates to the amendment moved by my hon. Friend the Member for Maldon and East Chelmsford. In response to him, the Minister said that it is open to any person to appeal to the Competition Appeal Tribunal against any judgment by Ofcom with which he disagreed. In similar vein to what my hon. Friend said, the whole arrangement gives rise to some concern within the telecommunications industry because, in effect, if someone were taking legal proceedings against a company that is appealing against a decision on which the legal proceedings are based, the question arises about which takes precedence.

The amendment proposes that the proceedings that may be brought by virtue of subsection (2)(a) ought to be suspended pending the outcome of an appeal under section 187 in respect of a decision by Ofcom about a breach or an alleged breach, which is the subject matter of the proceedings. There is another matter connected with which decision would take precedence. Would it be the decision of the Competition Appeal Tribunal or the decision of the court in which the individual had taken proceedings under subsection (2)(a)? That should be clarified. It would be to the benefit of the Competition Appeal Tribunal standing if that decision were binding in respect of any action brought by a third party under subsection (2)(a). The amendment would add such a caveat. Without such an amendment, there is a danger of proceedings being brought under the circumstances that my hon. Friend and I have outlined when the nature of the cause of such proceedings is not accepted by the company concerned and is the subject of an important appeal against Ofcom's decision.

I hope the Minister will consider the fact that there appears to be a flaw—if that is not too strong a word—in the thinking about the way these arrangements have been set out and that he will, at the very least, acknowledge that where an Ofcom ruling is the subject of an appeal in which he laid store in his reply to my hon. Friend the Member for Maldon and East Chelmsford, it would be ludicrous if the proceedings permitted under subsection 2(a) were to be continued.

Mr Simon Thomas (Ceredigion, Plaid Cymru)

I want to add my support, in principle, to the hon. Member for Ryedale (Mr. Greenway). Looking at the particular clause and the amendments that have been tabled to it, it seems that the Government are in danger of tying up the industry in knots over these issues. Some contentious cases could come forward, which would slow down the effective work of Ofcom in its early days. We need to have an idea about how to get Ofcom moving in a proper format. Although I sympathise with what the Government are trying to achieve in this particular clause—strengthening the consumer arm within the structure of the Bill—we have to balance that with the other appeals systems. Somehow these have to be squared within the framework of the Bill, but so far that has not been achieved. I hope that the Minister will reply that the Government are prepared to look again at the Bill and ensure that the customers and the industries regulated by Ofcom, and the public, know clearly who will have precedence when these issues

come before either the courts or an appeals process. My personal feeling is that it is better to have an exhaustive appeals process before there is any recourse to court action. It seems that, if we build an appeals process into the Bill, that must take precedence over any court action.

Mr Stephen Timms (Minister of State (e-Commerce & Competitiveness), Department of Trade and Industry; East Ham, Labour)

On the hon. Gentleman's last point, an important feature of the arrangements under clause 100 is that some matters will not go to Ofcom at all. He expressed concern that Ofcom might get bogged down with decisions and appeals. The reverse is the case as a result of these arrangements. Some issues will be sorted out by the courts and will not go to Ofcom at all. That will assist Ofcom in managing its work in the early stages, rather the reverse of the concern that the hon. Gentleman has just expressed.

Amendment No. 113, as the hon. Member for Ryedale has said—revisiting some of the issues raised by amendment No. 112—would limit the extent to which third parties would be able to exercise the right that we are proposing to give to them to those cases where either Ofcom did not take a decision on the alleged breach of condition, or that it did so but there was no appeal to the Competition Appeal Tribunal. Under the amendment, the lodging of an appeal would automatically bring the court proceedings to an end and substitute the decision of the Competition Appeal Tribunal for the decision that the court would otherwise take.

The amendment is not necessary. The courts would be able to stay proceedings before them, pending the outcome of an appeal to the Competition Appeal Tribunal. If the tribunal upheld Ofcom's decision, I would expect the courts not to go against that. Allowing the amendment, on the other hand, could well encourage providers—if they were the subjects of court proceedings—to bring the case to Ofcom and seek a decision that they could then appeal against to avoid a court case. That would be an undesirable change to the arrangements set out under clause 100.

Given the reassurance of how the courts might deal with a case where there is an appeal, the hon. Gentleman may be able to withdraw the amendment.

Mr John Greenway (Ryedale, Conservative)

The Minister, with his usual flair puts the alternative point of view. I am not entirely convinced that this is how it would work in practice. We have, in the previous amendment and the Division that we took on it, expressed our opinion that clause 100 contains some provisions which have not been thought through. Having voted on the previous amendment, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 100 ordered to stand part of the Bill.

Mr Roger Gale (North Thanet, Conservative)

May I put this to the test? Are there any matters arising from clauses 101 to 115 and schedules 3 and 4?

Mr John Greenway (Ryedale, Conservative)

I wish to catch your eye on schedule 4, Mr. Gale.

Mr Michael Fabricant (Lichfield, Conservative)

And I on clause 104.

Mr Richard Allan (Sheffield, Hallam, Liberal Democrat)

I on clause 102.

Clause 101 ordered to stand part of the Bill.